CONVENTIONAL
Eligible Property Types

When applying for a conventional loan, it is important to understand that the property you intend to purchase must meet certain eligibility criteria. Conventional loans, which are not backed by any government agency, like the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), have specific requirements that are set by lenders. These guidelines ensure that the property being financed is a sound investment and poses minimal risk to both the borrower and the lender. Below are key factors that determine property eligibility for a conventional loan

Property Type
Conventional loans can be used to finance various types of properties, but not all are eligible. Eligible property types include single-family homes, condominiums, townhomes, and multi-unit properties (up to four units). Additionally, the property must be classified as residential; commercial properties or mixed-use properties with a significant portion dedicated to business activities generally do not qualify.

Property Condition
Lenders require that the property be in good condition and meet certain safety standards. The home must be livable and structurally sound. Major issues such as foundation problems, roof damage, or extensive repairs might disqualify the property or delay approval until repairs are completed. Lenders typically require a home inspection or appraisal to verify the property’s condition.

Property Location
The property must be located within areas that the lender considers eligible for conventional loans. This is particularly relevant for those looking to purchase in rural or less developed areas, where government-backed loans, such as USDA loans, might be more common. However, most urban and suburban areas will have no issues qualifying for a conventional loan.

Loan Limits
Conventional loans are subject to conforming loan limits, which vary by region and are set by the Federal Housing Finance Agency (FHFA). As of 2024, the baseline conforming loan limit is $766,550, though in high-cost areas it can go up to $1,149,825. The property’s value must fall within these limits for the loan to be considered conforming. Properties with values exceeding these limits may require a jumbo loan, which has stricter lending criteria.

Occupancy Requirements
The intended use of the property plays a role in eligibility as well. Conventional loans typically allow for the purchase of a primary residence, second home, or investment property. However, the terms and down payment requirements vary depending on the type of property. For example, financing an investment property generally requires a larger down payment and higher credit standards compared to purchasing a primary residence.

Understanding these property eligibility criteria is crucial when seeking a conventional loan. Meeting the guidelines ensures that your investment is not only a safe and sound one but also that the financing process goes smoothly. If you’re ever unsure about your property’s eligibility, working closely with a lender or real estate professional can help clarify the specific requirements and help you secure the best financing option for your needs.